Access to Finance

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Summary

This page offers an overview of why we are interested in access to finance as a means of encouraging local economic growth and offers insight on what does and doesn’t work in this policy area.

Access to finance schemes do support firm financing, but we know little about firm performance, or local economic growth

It summarises some of the evidence we already have on what works when delivering these types of programmes, and offers some thoughts on improving evaluation as well as some case study examples. Throughout the page you’ll find links to further resources including a more detailed discussion of why we look at access to finance, our full evidence review, as well as evaluation resources.

What is access to finance and how can it deliver economic growth?

Access to finance refers to public loans or government subsidised loans for firms. Such loans are intended to support and stimulate economic growth by providing financing to firms where the market is failing to do so.

Access to finance policies are intended to impact on firm growth, productivity and employment. Ideally, any evaluation of access to finance would seek to understand these affects, as well as evaluating the effect on firm financing.

There are a number of reasons why government might support access to finance schemes:

enabling start-up, micro and small and medium sized firms to grow

supporting the growth and development of innovative business when social returns exceed private returns (e.g. because of wider impacts on innovation and knowledge, or other societal benefits)

Technological change and big data may have a role to play in reducing market failures in accessing finance. Similarly, these changes may also affect the means by which governments choose to provide finance to firms.

What does the evidence on access to finance show?

Access to finance schemes tend to be effective in improving access to debt finance, although there is some evidence that loan guarantees may increase default risk. The evidence on impact on access to equity finance is more mixed.

Even though schemes do improve access to finance, this doesn’t necessarily translate into improved firm performance.

Most of the evaluations that look at some aspect of firm performance do find positive effects. But results are much more mixed when it comes to specific aspects of firm performance - with only around half of the evaluations reporting a positive effect when looking at these (e.g. employment).

What policymakers need to know when designing access to finance programmes

Just because a scheme improves access to finance, doesn’t necessarily mean that it improves firms’ economic performance. There is also little available evidence on whether positive effects on individual firms translate in to greater local economic growth. It’s possible that gains to supported local firms come at the expense of other non-supported local firms.

The existing evidence base does not provide much guidance on how to develop programmes to improve policy effectiveness. That is, ‘what works better’ in terms of policy design. For example, there’s no evidence that programmes targeted at Small and Medium Sized Enterprises are more or less effective than non-targeted programmes or that effectiveness differs across different types of programme. Again, our evidence review provides more details. You can download a summary below.

If policymakers want to use access to finance programmes to support local economic growth, we need more evidence on the most effective ways to deliver these programmes.

What policymakers and academics need to know when evaluating access to finance programmes

Too many evaluations of access to finance schemes focus only on the direct impacts on firm financing. We need more evaluations that consider the impacts on firm performance and on local economic growth.